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The Text of the Dodd-Frank Act
International Association of
Risk and Compliance Professionals (IARCP)
Dodd Frank Act Section 913
SEC. 913. STUDY AND RULEMAKING REGARDING
OBLIGATIONS OF BROKERS, DEALERS, AND INVESTMENT ADVISERS.
(a) DEFINITION.—For
purposes of this section, the term ‘‘retail customer’’ means a
natural person, or the legal representative of such natural
person, who—
If any
provision of this Act, an amendment made by this Act, or the
application of such provision or amendment to any person or
circumstance is held to be unconstitutional, the remainder of this
Act, the amendments made by this Act, and the application of the
provisions of such to any person or circumstance shall not be
affected thereby.
(1) receives personalized investment advice about securities from
a broker or dealer or investment adviser; and
(2) uses such
advice primarily for personal, family, or household purposes.
(b) STUDY.—The Commission shall
conduct a study to evaluate—
(1) the effectiveness of
existing legal or regulatory standards of care for brokers,
dealers, investment advisers, persons associated with brokers or
dealers, and persons associated with investment advisers for
providing personalized investment advice and recommendations about
securities to retail customers imposed by the Commission and a
national securities association, and other Federal and State legal
or regulatory standards; and
(2) whether there are legal or
regulatory gaps, shortcomings, or overlaps in legal or regulatory
standards in the protection of retail customers relating to the
standards of care for brokers, dealers, investment advisers,
persons associated with brokers or dealers, and persons associated
with investment advisers for providing personalized investment
advice about securities to retail customers that should be
addressed by rule or statute.
(c)
CONSIDERATIONS.—In conducting the study required under
subsection (b), the Commission shall consider—
(1) the
effectiveness of existing legal or regulatory standards of care
for brokers, dealers, investment advisers, persons associated with
brokers or dealers, and persons associated with investment
advisers for providing personalized investment advice and
recommendations about securities to retail customers imposed by
the Commission and a national securities association, and other
Federal and State legal or regulatory standards;
(2)
whether there are legal or regulatory gaps, shortcomings, or
overlaps in legal or regulatory standards in the protection of
retail customers relating to the standards of care for brokers,
dealers, investment advisers, persons associated with brokers or
dealers, and persons associated with investment advisers for
providing personalized investment advice about securities to
retail customers that should be addressed by rule or statute;
(3) whether retail customers understand that there are
different standards of care applicable to brokers, dealers,
investment advisers, persons associated with brokers or dealers,
and persons associated with investment advisers in the provision
of personalized investment advice about securities to retail
customers;
(4) whether the existence of different standards
of care applicable to brokers, dealers, investment advisers,
persons associated with brokers or dealers, and persons associated
with investment advisers is a source of confusion for retail
customers regarding the quality of personalized investment advice
that retail customers receive;
(5) the regulatory,
examination, and enforcement resources devoted to, and activities
of, the Commission, the States, and a national securities
association to enforce the standards of care for brokers, dealers,
investment advisers, persons associated with brokers or dealers,
and persons associated with investment advisers when providing
personalized investment advice and recommendations about
securities to retail customers, including—
(A) the
effectiveness of the examinations of brokers, dealers, and
investment advisers in determining compliance with regulations;
(B) the frequency of the examinations; and
(C) the
length of time of the examinations;
(6) the substantive
differences in the regulation of brokers, dealers, and investment
advisers, when providing personalized investment advice and
recommendations about securities to retail customers;
(7)
the specific instances related to the provision of personalized
investment advice about securities in which—
(A) the
regulation and oversight of investment advisers provide greater
protection to retail customers than the regulation and oversight
of brokers and dealers; and
(B) the regulation and
oversight of brokers and dealers provide greater protection to
retail customers than the regulation and oversight of investment
advisers;
(8) the existing legal or regulatory standards of
State securities regulators and other regulators intended to
protect retail customers;
(9) the potential impact on
retail customers, including the potential impact on access of
retail customers to the range of products and services offered by
brokers and dealers, of imposing upon brokers, dealers, and
persons associated with brokers or dealers—
(A) the
standard of care applied under the Investment Advisers Act of 1940
(15 U.S.C. 80b–1 et seq.) for providing personalized investment
advice about securities to retail customers of investment
advisers, as interpreted by the Commission and the courts; and
(B) other requirements of the Investment Advisers Act of 1940
(15 U.S.C. 80b–1 et seq.);
(10) the potential impact of
eliminating the broker and dealer exclusion from the definition of
‘‘investment adviser’’ under section 202(a)(11)(C) of the
Investment Advisers Act of 1940 (15 U.S.C. 80b–2(a)(11)(C)), in
terms of—
(A) the impact and potential benefits and harm to
retail customers that could result from such a change, including
any potential impact on access to personalized investment advice
and recommendations about securities to retail customers or the
availability of such advice and recommendations;
(B) the
number of additional entities and individuals that would be
required to register under, or become subject to, the Investment
Advisers Act of 1940 (15 U.S.C. 80b– 1 et seq.), and the
additional requirements to which brokers, dealers, and persons
associated with brokers and dealers would become subject,
including—
(i) any potential additional associated person
licensing, registration, and examination requirements; and
(ii) the additional costs, if any, to the additional entities and
individuals; and
(C) the impact on Commission and State
resources to—
(i) conduct examinations of registered
investment advisers and the representatives of registered
investment advisers, including the impact on the examination
cycle; and
(ii) enforce the standard of care and other
applicable requirements imposed under the Investment Advisers Act
of 1940 (15 U.S.C. 80b–1 et seq.);
(11) the varying level
of services provided by brokers, dealers, investment advisers,
persons associated with brokers or dealers, and persons associated
with investment advisers to retail customers and the varying scope
and terms of retail customer relationships of brokers, dealers,
investment advisers, persons associated with brokers or dealers,
and persons associated with investment advisers with such retail
customers;
(12) the potential impact upon retail customers
that could result from potential changes in the regulatory
requirements or legal standards of care affecting brokers,
dealers, investment advisers, persons associated with brokers or
dealers, and persons associated with investment advisers relating
to their obligations to retail customers regarding the provision
of investment advice, including any potential impact on—
(A) protection from fraud;
(B) access to personalized
investment advice, and recommendations about securities to retail
customers; or
(C) the availability of such advice and
recommendations;
(13) the potential additional costs and
expenses to—
(A) retail customers regarding and the
potential impact on the profitability of their investment
decisions; and
(B) brokers, dealers, and investment
advisers resulting from potential changes in the regulatory
requirements or legal standards affecting brokers, dealers,
investment advisers, persons associated with brokers or dealers,
and persons associated with investment advisers relating to their
obligations, including duty of care, to retail customers; and
(14) any other consideration that the Commission considers
necessary and appropriate in determining whether to conduct a
rulemaking under subsection (f).
(d)
REPORT.—
(1) IN GENERAL.—Not later than 6 months
after the date of enactment of this Act, the Commission shall
submit a report on the study required under subsection (b) to—
(A) the Committee on Banking, Housing, and Urban Affairs of
the Senate; and
(B) the Committee on Financial Services of
the House of Representatives.
(2)
CONTENT REQUIREMENTS.—The report required under paragraph
(1) shall describe the findings, conclusions, and recommendations
of the Commission from the study required under subsection (b),
including—
(A) a description of the considerations,
analysis, and public and industry input that the Commission
considered, as required under subsection (b), to make such
findings, conclusions, and policy recommendations; and
(B)
an analysis of whether any identified legal or regulatory gaps,
shortcomings, or overlap in legal or regulatory standards in the
protection of retail customers relating to the standards of care
for brokers, dealers, investment advisers, persons associated with
brokers or dealers, and persons associated with investment
advisers for providing personalized investment advice about
securities to retail customers.
(e)
PUBLIC COMMENT.—The Commission shall seek and consider
public input, comments, and data in order to prepare the report
required under subsection (d).
(f)
RULEMAKING.—The Commission may commence a rulemaking, as
necessary or appropriate in the public interest and for the
protection of retail customers (and such other customers as the
Commission may by rule provide), to address the legal or
regulatory standards of care for brokers, dealers, investment
advisers, persons associated with brokers or dealers, and persons
associated with investment advisers for providing personalized
investment advice about securities to such retail customers.
The Commission shall consider the findings conclusions, and
recommendations of the study required under subsection (b).
(g) AUTHORITY TO ESTABLISH A FIDUCIARY
DUTY FOR BROKERS AND DEALERS.—
(1) SECURITIES EXCHANGE ACT
OF 1934.—Section 15 of the Securities Exchange Act of 1934
(15 U.S.C. 78o) is amended by adding at the end the following:
‘‘(k) STANDARD OF CONDUCT.—
‘‘(1)
IN GENERAL.—Notwithstanding any other provision of this Act
or the Investment Advisers Act of 1940, the Commission may
promulgate rules to provide that, with respect to a broker or
dealer, when providing personalized investment advice about
securities to a retail customer (and such other customers as the
Commission may by rule provide), the standard of conduct for such
broker or dealer with respect to such customer shall be the same
as the standard of conduct applicable to an investment adviser
under section 211 of the Investment Advisers Act of 1940.
The receipt of compensation based on commission or other standard
compensation for the sale of securities shall not, in and of
itself, be considered a violation of such standard applied to a
broker or dealer.
Nothing in this section shall require a
broker or dealer or registered representative to have a continuing
duty of care or loyalty to the customer after providing
personalized investment advice about securities.
‘‘(2)
DISCLOSURE OF RANGE OF PRODUCTS OFFERED.—Where
a broker or dealer sells only proprietary or other limited range
of products, as determined by the Commission, the Commission may
by rule require that such broker or dealer provide notice to each
retail customer and obtain the consent or acknowledgment of the
customer.
The sale of only proprietary or other limited
range of products by a broker or dealer shall not, in and of
itself, be considered a violation of the standard set forth in
paragraph (1).
‘‘(l) OTHER MATTERS.—The
Commission shall—
‘‘(1) facilitate the provision of simple
and clear disclosures to investors regarding the terms of their
relationships with brokers, dealers, and investment advisers,
including any material conflicts of interest; and
‘‘(2)
examine and, where appropriate, promulgate rules prohibiting or
restricting certain sales practices, conflicts of interest, and
compensation schemes for brokers, dealers, and investment advisers
that the Commission deems contrary to the public interest and the
protection of investors.’’.
(2)
INVESTMENT ADVISERS ACT OF 1940.—Section 211 of the
Investment Advisers Act of 1940, is further amended by adding at
the end the following new subsections:
‘‘(g)
STANDARD OF CONDUCT.—
‘‘(1)
IN GENERAL.—The Commission may promulgate rules to provide
that the standard of conduct for all brokers, dealers, and
investment advisers, when providing personalized investment advice
about securities to retail customers (and such other customers as
the Commission may by rule provide), shall be to act in the best
interest of the customer without regard to the financial or other
interest of the broker, dealer, or investment adviser providing
the advice.
In accordance with such rules, any material
conflicts of interest shall be disclosed and may be consented to
by the customer.
Such rules shall provide that such
standard of conduct shall be no less stringent than the standard
applicable to investment advisers under section 206(1) and (2) of
this Act when providing personalized investment advice about
securities, except the Commission shall not ascribe a meaning to
the term ‘customer’ that would include an investor in a private
fund managed by an investment adviser, where such private fund has
entered into an advisory contract with such adviser.
The
receipt of compensation based on commission or fees shall not, in
and of itself, be considered a violation of such standard applied
to a broker, dealer, or investment adviser.
‘‘(2)
RETAIL CUSTOMER DEFINED.—For purposes
of this subsection, the term ‘retail customer’ means a natural
person, or the legal representative of such natural person, who—
‘‘(A) receives personalized investment advice about securities
from a broker, dealer, or investment adviser; and
‘‘(B)
uses such advice primarily for personal, family, or household
purposes.
‘‘(h) OTHER MATTERS.—The
Commission shall—
‘‘(1) facilitate the provision of simple
and clear disclosures to investors regarding the terms of their
relationships with brokers, dealers, and investment advisers,
including any material conflicts of interest; and
‘‘(2)
examine and, where appropriate, promulgate rules prohibiting or
restricting certain sales practices, conflicts of interest, and
compensation schemes for brokers, dealers, and investment advisers
that the Commission deems contrary to the public interest and the
protection of investors.’’.
(h)
HARMONIZATION OF ENFORCEMENT.—
(1)
SECURITIES EXCHANGE ACT OF 1934.—Section
15 of the Securities Exchange Act of 1934, as amended by
subsection (g)(1), is further amended by adding at the end the
following new subsection:
‘‘(m)
HARMONIZATION OF ENFORCEMENT.—The enforcement authority of
the Commission with respect to violations of the standard of
conduct applicable to a broker or dealer providing personalized
investment advice about securities to a retail customer shall
include—
‘‘(1) the enforcement authority of the Commission
with respect to such violations provided under this Act; and
‘‘(2) the enforcement authority of the Commission with respect
to violations of the standard of conduct applicable to an
investment adviser under the Investment Advisers Act of 1940,
including the authority to impose sanctions for such violations,
and the Commission shall seek to prosecute and sanction violators
of the standard of conduct applicable to a broker or dealer
providing personalized investment advice about securities to a
retail customer under this Act to same extent as the Commission
prosecutes and sanctions violators of the standard of conduct
applicable to an
investment advisor under the Investment
Advisers Act of 1940.’’.
(2)
INVESTMENT ADVISERS ACT OF 1940.—Section 211 of the
Investment Advisers Act of 1940, as amended by subsection (g)(2),
is further amended by adding at the end the following new
subsection:
‘‘(i) HARMONIZATION OF
ENFORCEMENT.—The enforcement authority of the Commission
with respect to violations of the standard of conduct applicable
to an investment adviser shall include—
‘‘(1) the
enforcement authority of the Commission with respect to such
violations provided under this Act; and
‘‘(2) the
enforcement authority of the Commission with respect to violations
of the standard of conduct applicable to a broker or dealer
providing personalized investment advice about securities to a
retail customer under the Securities Exchange Act of 1934,
including the authority to impose sanctions for such violations,
and the Commission shall seek to prosecute and sanction violators
of the standard of conduct applicable to an investment adviser
under this Act to same extent as the Commission prosecutes and
sanctions violators of the standard of conduct applicable to a
broker or dealer providing personalized investment advice about
securities to a retail customer under the Securities Exchange Act
of 1934.’’.
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